Cyprus offers one of the most attractive tax regimes in Europe, with the Notional Interest Deduction (NID) being a powerful tax-planning tool for companies that strengthen their equity.
What is NID?
NID is a tax deduction that allows Cyprus companies to deduct from their taxable profits a notional interest on equity, such as:
- Share capital (ordinary or preference shares)
- Share premium
- Capitalisation of profits or injection of new funds
The rationale behind NID is to equalise the tax treatment between debt financing and equity financing, providing an incentive for businesses to fund themselves through equity.
What is the benefit?
A company may deduct from its taxable profits a notional interest calculated as follows:
NID = Eligible equity amount × NID interest rate announced by the Ministry of Finance
The interest rate varies depending on the year and the currency of the contribution. Indicatively, for euro investments, the NID rate for 2024 was approximately 7.2%.
Who can benefit?
NID applies to:
- Newly established Cyprus companies
- Existing companies that strengthen their equity
- Holding or trading companies
- Startups financed through share premium
Example of use
If a Cyprus company increases its equity by €500,000 through share premium, with an NID rate of 7.2%, it may deduct up to €36,000 from its taxable profits each year.
Combination with Share Premium
NID is particularly effective when combined with increases through share premium, as no actual cash contribution is required—only an accounting entry—provided the relevant conditions are met.
Local advantages with an international outlook
The Localit team can guide you in the optimal use of NID and in structuring the capital of your Cyprus company correctly.
Contact us for comprehensive guidance and a tailor-made tax plan adapted to the needs of your business.
With the establishment of your company through us, we offer free of charge:
- Invoicing / bookkeeping software and accounting entries
- Domain name registration in .com or .eu
- 1 consultation per month, with a duration of 1 hour
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Contact UsFor more information, you may contact Localit Consulting to receive detailed answers to your questions.
Phone: 6982220765, +357 22053831, Email: info@localitco.com
Alternatively, you may complete the expression of interest form by clicking here, and we will contact you promptly.
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The information provided in this article does not, under any circumstances, constitute pressure or encouragement for anyone with the aim of avoiding applicable laws in each country or circumventing proper tax policies. It is intended solely as advisory content and informational articles. The author expressly disclaims any liability towards any individual, entity, or company that acts or refrains from acting based on all or part of the content of this text. Therefore, no action should be taken or reliance placed on the subject matter or the information herein without first obtaining advice from appropriate and competent professionals regarding one’s activity and entity in general.
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